Transnational Business Law

Transnational Business Law

PROF. LUCA BOGGIO 1

Law is the expression of the sovereignty of each State or of the bilateral/multilateral organisations

founded by two or more States (i.e. EU). Sovereignty is their power to regulate status and

activities of the people and of the other entities acting within their territories.

The international business operations don’t stop at national or at regional borders, but they can

cross them, even regardless of the permission of the laws, which means that the transnational

economy can cross the borders drawn by the States’ sovereignties. That’s the problem and, at

meantime, the subject of Transnational Business Law.

PROF. LUCA BOGGIO 2

Transnational Business Law is the set of the principles and rules shared by the majority of the

States involved in international business transactions as well as the domestic ones applicable to

transnational operations. It is important have in mind the difference between:

- Multilateral Treaties provide the ones shared by three or more States to govern the

transnational business relationships (e.g. TEU, CEDU, CISG, VCLT, etc.)

- Bilateral Treaties provide the ones shared by two States to govern the transnational

business relationships (e.g. BITs, Treaties of Friendship, Conventions related to Bankruptcy

aspects, etc.)

Mandatory domestic laws may try to govern these transborder relationships when a specific

business transaction get in touch with a specific territory (e.g. insolvency laws, Argentinian 2002

“Emergency Law”, etc.)

In the the transnational economy experiences also some denationalized principles and rules better

known as “international trade uses” (e.g. Unidroit Principles for commercial contracts) or, but it is

controversial, Lex Mercatoria (i.e. the “law of the merchants”, that we can define as the body of

rules, different in the origin and in the contents, created by the trade community to serve the

needs of international trade).

By the way, there are three big sets of sources regulate the transnational business transactions:

• Bi/multinational;

• National;

• Denationalised;

These three set of principles/rules do not always deal with the problems according to the same

guidelines (because each source focuses on its specific interests and these interests may be

different) because each one is a “set” of sources; so, inside each set, we can find a number of

principles and of provisions that should be even in conflict between them.

For consequence, there can be conflicts between transnational rules, transnational and national

rules, transnational or national rules and denationalised principles. Transnational Business Law act

like an attempt to solve these kinds of conflicts and to find a common legal framework governing

cross-border deals.

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17.9.2018 – Lesson 1 Introduction

Normally, the legal systems solve the conflicts of laws problems by some binding means:

ØUniform Laws provided by multilateral treaties

ØBilateral Treaties (e.g. BITs – Bilateral Treaties to protect investments)

ØPrivate International Laws (multilateral as well as national)

ØUniform Interpretations of the legal norms by State jurisdictions or arbitral tribunals/panels

(often mandatory within the scope of the uniform law conventions; e.g. art. 7 CISG)

ØAd Hoc Diplomatic negotiations (to reach new agreements)

PROF. LUCA BOGGIO 5

17.9.2018 – Lesson 1

Your Transnational Business Law Course

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17.9.2018 – Lesson 1 Introduction

During our TBL modules we will try to understand how the legal system works and which are the

main principles and rules governing transnational business operations

The First Module will focus just on some aspects of the International Finance

The Second Module will focus on a wider range of fields as the IP, Privacy, International Sales of

Goods, Arbitration, Mediation (and so on)

***

The First Module will not focus on all the principles and the rules concerning the International

Finance, but just on principles and rules applicable to the defaulted large international issuers of

bonds, both privates (such as Parmalat, Lehman and Barings) and publics (such as Argentina and

Greece)

The fundamental questions are:

◦ 1) “How to protect bondholders when they have to deal with the insolvency of the international

bond issuers?”

◦ 2) “Does a sovereign bond issue require different regulations compared to the private ones?

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17.9.2018 – Lesson 1 Introduction

Why a so specific approach to Transnational Financial Law?

Some factors suggest to study Transnational Business Law approaching just the regulations of the

international financial markets and, more specifically, the protection of bondholders who have to

deal with issuers’ insolvency:

The extension of “financial sector” because there are:

◦ manykindsofsecurities;

◦ anhighnumberoflegislationsinvolved;

◦

verymuchdifficultiestoharmonizedomesticandregionalregulations(regionalsuchastheonesofEU,Naf

ta,etc.)

The complexity of problems due to:

◦ The structure of the security issues (i.e. financial operations realized by steps and involving the

obligations of many parties; many levels of collateralization; different investors’ ability of

understanding the financial instruments and the related risks)

◦ Thehighnumberofinterestsinvolved(e.g.investors,intermediaries,issuers,arrangers,thirdparties)

◦

Thedifferentqualityofinterestsinvolved(individual/groups/sovereign/corporate/systemic;economic

/ethical)

◦ Thespeedofmarkettrendchangesvs.longdurationofloansandofequityinvestments

Furthermore, the bond market regulations are good samples of the most relevant characteristics

of the international trade law

PROF. LUCA BOGGIO 8

17.9.2018 – Lesson 1 Introduction

Some alerts for students:

The course will not run out all the aspects and all the problems of the financial market regulation,

but it has the aim at giving a “file rouge” in the tangle of the financial rules that governs the

international financial markets

Remember that the course is a business law course, not a public international law one; so, our

attention will be payed to business law aspects, considering that bonds issued by sovereign are in

“fund raising competition” with the private ones (in other words, the sovereign securities may be

considered as an alternative to the private bonds by the investors, even by the retail investors)

Law is a problem solving tool, not a means to create the “perfect world”

PROF. LUCA BOGGIO 9

17.9.2018 – Lesson 1 Introduction

Methods:

◦ First step: some frontal lectures about the main topics (general concepts, financial institutions

and other actors, guidelines of the securities regulations, a more analytic investigation of the

insolvency rules, of the state insolvency problems and an overview of the general principles

applicable to sovereign insolvencies)

◦ Second step: several case studies presented and discussed by students (Parmalat, Barings,

Argentina, Greece, etc.)

◦ Third step: some general discussions comparing the main issues related to the private and the

sovereign insolvencies

PROF. LUCA BOGGIO 10

17.9.2018 – Lesson 1

Some fundamental “General Concepts”

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17.9.2018 – Lesson 1 General Concepts

Regulations governing the financial sector are the result of both the public legislations and the

private self-government rules (by the codes of conduct and/or the contractual standardization

often promoted by the organisations of the financial professionals)

Public legislators increase the financial regulations by the adoption of new rules as well as by the

restatement of the pre-existent ones. It is not rare that the new law provisions are similar or, at

least, based on the principles established by some private self-government organisations

But, (national and supranational) legislators have to deal (and sometimes to fight) with the

attempts of the financial actors to seek for the most favourable regulations (choosing specific laws

by the governing law clauses and the more friendly jurisdictions or ADRs: this is called “law/forum

shopping”)

From the perspective of the regulators, “law/forum shoppings” are dangerous because they

undermine the adequacy of the laws in protecting the weaker interests

PROF. LUCA BOGGIO 12

17.9.2018 – Lesson 1 General Concepts

So, looking at the financial sector, we can see these trends:

◦ some attempts to foster the convergence of the regional and of the national regulations (see, for

example, G-8 and G-20 documents)

◦ Some attempts to apply the principles more able to promote the markets’ efficiency and the

equity increase, as means to foster future financial deals and, by this means, the markets’ growth

(i.e. efficiency and equity to financial stability and macroeconomic development)

◦ A growing role of NGO as Standard Setters to draw general accepted legal frameworks (i.e.

IOSCO, ICC, ICMA, etc.)

PROF. LUCA BOGGIO 13

Question:

17.9.2018 – Lesson 1 General Concepts

Does a transnational financial law really exist?

Answer:

Transnational Financial Law is not a “sole law”

Transnational Financial Law is a combination of rules provided by various legislations based – at

least – partially on the same principles

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17.9.2018 – Lesson 1

What is the subject of the Transnational Business Law?

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17.9.2018 – Lesson 1

General Concepts: the Goods

What is traded in the financial market?

◦ Everything “intangible” (rights on money, corn, soya, oranges, bananas, gold, future gains, future

losses: every kind of contract obligations is “marketable”)

Why the financial market is basically “transnational”?

◦ Investors search for the best opportunities anywhere they can find (money is an exchangeable

good and, if not blocked, money can cross many borders very quickly, going, coming back and

going away again and so on ....)

PROF. LUCA BOGGIO 16

17.9.2018 – Lesson 1

General Concepts: the Goods

Transnational Financial Law is both:

Øthe law of the securities (such as documents – maybe also in electronic format – that constitute

or evidence an underlying intangible obligation)

Øthe law of the personal relationships that justify the security issues/negotiation (i.e. the law of

the issues, the placements, the negotiations and the reimbursements of the securities)

So, studying Transnational Financial Law, we have to deal with financial contract laws, company

laws, insolvency laws, public international law, private international laws, uniform laws, ect.

PROF. LUCA BOGGIO 17

17.9.2018 – Lesson 1

General Concepts: the Market

The main significant legal characteristics of the international financial markets:

ØIt is difficult to forecast which could be the applicable legal framework, that is the principles and

rules which could be applied to a specific security issue or a financial transaction (but the most

frequent governing law clauses provide the application of E&W or NY Laws)

ØIt is difficult to know in advance the forum that is the jurisdiction that should be required to

solve a future financial litigation (normally, the security holders are from many different countries

and the issuers assets are located in third jurisdictions; for this, it could be uncertain even which

could be the more convenient and the more efficient judge or arbitrator)

In sum, if no international binding instrument (i.e. multilateral treaty or a bilateral one) is

applicable, the parties risk to be subject in case of litigation to unpredicted domestic regulations

by a previously “non-accepted” judge

PROF. LUCA BOGGIO 18

17.9.2018 – Lesson 1

Transnational Business Law vs. Domestic Legislations

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17.9.2018 – Lesson 1 General Concepts

In case of applicability of national regulations, we have to take into account that:

◦ The provisions of each national legislations could be just partially similar as well as also the

general legal frameworks could be

◦ Even, some legal concepts could be different (i.e. concepts of property, of intangibles, of the

extent of fiduciary duties)

◦ Furthermore, the national technical rules could vary (i.e. accounting principles as the US

GAAP/IAS-IFRS)

◦ The interpretation may reduce or increase the gaps between the various national legal concepts

and the different domestic rules (the legal systems open to the international trade promote the

“uniform” and the “international” interpretations as best approaches to build coherent legal

frameworks for the cross-border business (i.e. USC - Chapter 15 according to the guideline given

by the UNCITRAL Model Law)

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17.9.2018 – Lesson 1

Transnational Business Law and the Main Features of the Financial Markets

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17.9.2018 – Lesson 1 General Concepts

Some practical features of the financial markets that can be legally relevant: ØA really complete

and permanent standardisation of the securities lacks

ØIssuers often make multiple security issues (not unfrequently, issuing securities with partially

different characteristics)

ØThe contractual documents of each issue are complex

ØThe electronic organisation of the markets (that increased the speed of the financial

negotiations)

PROF. LUCA BOGGIO 22

17.9.2018 – Lesson 1 General Concepts

Some others financial markets main relevant characters:

The capital market globalization avoids separation of the national financial markets (from the

economic point of view, there is just “one financial market”, but, according to the legal

perspective, there is one market for each territory governed by a legislation and the management

of distress debt is a domestic task to protect domestic interests; so, in default cases, States have to

play out of their sovereignties to face new political and democratic problems)

The lack of separation fosters the increase of concentration of funds (for example: States and GO

end to operate in the same markets of private entities)

No unique currency exists (with a further complexity due to the possibility given to each debtor

State to modify exchange rates, such as Argentina established in 2002 by the “Emergency Law”)

The placement and the trade of securities are multilevel (many international/retail bankers

intermediate in the placements and trade)

The financial market is just one of the markets and it is connected to other markets (in particular,

the monetary market)

PROF. LUCA BOGGIO 23

17.9.2018 – Lesson 1 General Concepts

For consequence:

The crisis of one financial market can easily extent to others and, in particular, to monetary market

(which is supervised by the IMF and by other international Institutions)

The crisis of one market can determinate crises in the others, financial as well as monetary or the

real estate ones (first lack of uniformity)

The crisis of one market might be solved by different rules in the others (second lack of

uniformity) ***

That connection maybe a problem, but also an opportunity (the connection to monetary market

gave in the past and gives today the chance to introduce some more uniform rules for the financial

activities by the means of the monetary powers of supranational authorities such as the IMF)

PROF. LUCA BOGGIO 24

17.9.2018 – Lesson 1 General Concepts

A useful picture of the financial world given by the IMF in 2012:

“The world has changed. Only a few decades ago, most national economies were barely

connected to the global financial world. Today, cross-border flows are the norm and large financial

institutions dominate the global economy. Then, domestic financial systems were small, with

banks performing simple deposit-taking and lending functions. Today, domestic financial sectors

are often enormous and complex, performing a wide range of financial services and offering

products that are sometimes opaque. Capital now moves at lightning speed to advanced and

emerging markets alike, reverses suddenly, and spreads shock waves that can be devastating.

These seismic changes have inexorably linked national economies to each other, transferring risks

across borders in ways that have become increasingly difficult to track. The realization that the

failure of one bank in one country can bring the global economy down, transmitting shocks to

economies far removed geographically, has fundamentally shaken the contours of our thinking

and policy making” (IMF, The IMFs Financial Surveillance Strategy, 28 August 2012)

PROF. LUCA BOGGIO 25

17.9.2018 – Lesson 1 General Concepts

Considering that picture, Transnational Financial Law has to:

ØOffer a generally acceptable discipline (in principle: a discipline not to be easily modified by a

single State to protect itself or its citizens/entities)

ØBe surely enforced in each single State (a right is a right just if and when the laws grant its

enforcement)

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17.9.2018 – Lesson 1

Transnational Business Law: the Sources

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Categories:

17.9.2018 – Lesson 1 General Concepts

Which are the sources of Transnational Business Law?

ØLegally binding instruments (so-called hard laws) ØInternational

ØMultilateral

ØBilateral ØNational

ØNon-legally binding instruments (so-called soft laws) ØVoluntary sources (Contracts)

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17.9.2018 – Lesson 1

Sources relevant for the Financial Sector

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17.9.2018 – Lesson 1

General Concepts: the Sources

Multilateral International instruments (legally binding instruments):

• Uniform Law Conventions (e.g.: Vienna Convention signed on 22nd May 1969 on the Law of

Treaties (VCLT); GATS)

• Private International Law Convention (e.g.: The Hague Convention signed on 5th July 2006 on

the Law Applicable to Certain Rights in Respect of Securities h